Look out above! The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen more than 20% in the last 12 months and is showing no signs of slowing, making it even more of a challenge to pick out companies which still offer great value and have strong growth potential.
The energy producers of the Cooper Basin seem to have been left in the dust by the market with three of the four main operator’s severely lagging the market. This could make them a perfect opportunity for investors.
Drillsearch (ASX: DLS) is the biggest trailer of the three, with shares currently down 20% in the last 12 months, while Beach Energy (ASX: BPT) is up just 0.4% and Senex Energy (ASX: SXY) is up 4.7%.
Santos (ASX: STO) is the only producer to buck the trend, rising a stellar 29% in the last 12 months. Santos has been in strong favour with investors as it nears completion of its PNG LNG project, as well as Queensland’s massive GLNG which will substantially increase revenues.
But the massive potential held by the Cooper Basin, as well as the existing infrastructure in the region means the other three should not be overlooked.
Earlier this month The Australian reported that the Cooper Basin has been nominated as one of the best prospective areas for shale gas outside North America by Texas-based investment and merchant banking firm Tudor Pickering Holt.
The company’s report identified Santos and Beach Energy as being the best positioned for future growth, but both Drill Search and Senex are fast growing and have attractive valuations, particularly given their prospects.
And the prospects are more than just a short-term gamble. Business SA chief executive Nigel McBride has told ABC News that based on Australia’s current gas usage, there is an estimated 100 years’ worth of gas supply in shale in the Cooper Basin.
The regions operators are to an extent insulated from exorbitant capital expenditure required of other shale gas projects thanks to the region’s long-standing infrastructure. This including Santos’ Moomba gas processing plant and pipeline networks that stretch to South Australia, New South Wales and Queensland. Pre-built infrastructure means lower costs and faster commercialisation for companies, and this helps to lower risks for investors.
Foolish takeaway
So far, the Cooper Basin’s large energy reserves and existing infrastructure do not appear to have been enough to tempt investors, who have opted instead for stable dividend paying companies. However the attractive valuations of these producers makes them attractive prospects with long-term potential.
SXY Price at posting:
81.7¢ Sentiment: Buy Disclosure: Held
